Fugro N.V.

Good morning, everyone. Thank you for dialing in to this webcast. We have published our Q3 trading update this morning. My name is Catrien van Buttingha, Investor Relations from Foucault. I am here with Mark Heine, our CEO, and Cees Den Ouden, our interim CFO. First, Mark will present a couple of slides. We'll take around 20 minutes or so. Maybe a little bit more and then we will open the floor for your questions. Thank you, Mark. Please go ahead.

Yes, welcome, everybody. Good morning. Welcome to the Q3 2026 trading updates. We go to the second slide. As we indicated at the publication of our first half year results, we have indicated that the second half of this year will be challenging and our third quarter performance reflected that outlook. Revenue grew, albeit modestly, and driven by a steady growth in oil and gas and infrastructure. This highlights our ability to successfully redeploy our capacity into markets where healthy demand was there, helping also to offset the continued weakness in offshore wind side markets. When we look at our margin development, it's clear that the Our priority is clear. to improve profitability and strengthen cash flow. We have taken substantial action over the past years to reduce our cost base. And current 50 million annualized cost reduction program is progressing as planned. And we're building on these actions by further intensifying our focus on structural performance improvements. This increasingly involves fundamental changes in how we organize ourselves, how we operate the business, which takes time to fully implement, and we're approaching these actions with urgency and strong focus on delivery. Looking ahead, we expect offshore wind side characterization to start to recover from the second half of 2027 onwards, as already communicated also at the half year. This expectation is supported by healthy tendering activity throughout the FIRM, although I have to say FIRM awards have yet to follow and our offshore wind backlog remains below last year's level. It's good to take note of that. But I will get back to the backlog and outlook later. We go to the next slide. Turning specifically to the Middle East, the situation remains volatile and continues to affect our operations. The negative EBIT impact was approximately 25 million euro year to date, of which 15 million was already communicated in the first half of the year, which is March to June. The additional third quarter impact mainly relates to operational disruptions, the transfer of the Fugro resilience through the Strait of Hormuz, and some clients deciding to undertake certain inspection and monitoring campaigns in-house. We have made operational adjustments that have reduced the impact of spoothing and jamming. However, disruptions of GNSS navigation signals continue to affect operations in the Gulf region. We're also seeing some indirect effects outside of the region, including higher fuel costs. The wider repercussions for the business environment remain difficult to predict. Looking ahead, the principal risk are potential delays in customer investments decisions, higher fuel prices, insurance costs, and changes to project startups and mobilization schedules. We're managing these effects as actively as possible and as best as we can, but the environment remains highly uncertain. We will therefore continue to monitor the developments closely and adjust our operations where necessary. Above all, the safety of our people remains our foremost priority. We go to the next slide. And now an update on the progress we have been making with our vessel rationalization program. As you know, this includes a variety of permanent and temporary adjustments to our vessel fleet. First, the retirement of owned vessels. In Q3, we retired the older geophysical vessel, the Fugro Meridian. Within the next couple of months, we will also retire an older geotechnical vessel in the Americas, Fugro Explorer. This is, by the way, a vessel that is fully depreciated. We talk about the long-term charters. In Q4, we will let go of two of our four long-term geotechnical charters. This is the Commander Orca, will be released at the end of its charter period, early 2027, and the Pacific Grouse will also be released upon the completion of the charter period in Q4. It has been replaced by the Fugue Resilience, our own capacity, which arrived in the Gulf region in early September. and is currently fully operational on its first project in the region. Then if we talk about the vessel redeployments, so we already spoke about the Fugro Resilience, we're also talking about the Fugro Helmert is to schedule to sail to the Middle East region in Q4 2026. and the Fugro Resolve is planned to operate in the Europe-Africa region as well as in the Americas in the first half probably of 2027. We'll see that happening. We didn't talk about cold and warm layups, and there are a lot of discussions that what is cold was warm. Basically, the longer you lay up something, the more cost you can save. The Fugro Zenith, the Fugro Revelation, and the Alaganza are now in the regular winter layup. That's for the winter season. While the Foucault Pioneer has been also in a so-called cold layup since Q3, earlier in Q3. Winter layup may follow with more vessels, depending on the completion of ongoing projects and the scheduling of future work. and we'll obviously continue to reassess the fleet capacity and benchmark it against current market developments, existing backlog and future expectation. And we're also trying to remain flexible for work that walks in and obviously also to be ready for a potential up cycle that is in the future visible. We go to the next slide. Let me briefly comment on the development of the 12-month backlog. The backlog was 8.5% lower year on year. This decline is predominantly driven by offshore wind, where the reduction in the market activity continues to affect the order intake for marine site characterization, as we have spoken about many times before. In oil and gas, the year on year comparison includes the large Indonesian project that was in the backlog last year. So if you exclude that project, the underlying oil and gas backlog has actually increased in multiple areas around the world. Infrastructure backlog also remains resilient, supported by continued demand across our key regions. We're seeing a broader change in customer behavior, with clients increasingly rewarding work closer to the planned execution date. This reduces backlog visibility, but does not necessarily indicate an equivalent reduction in the underlying level of market activity. The backlog therefore needs to be viewed in context. The headline decline reflects both weakness in offshore wind and the effect of timing and project phasing in oil and gas. At the same time, we remain very cautious. In offshore wind, tendering activity is healthy, but firm awards have yet to be followed. and we have to rebuild and see it back in our backlog. Overall, the backlog supports our expectation of continued activity in oil and gas and infrastructure, while offshore wind is likely to remain subdued in the near term. We go to the next slide. So now a couple of comments about the regional performance and also the business line or the two areas, marine and land. First marine, revenue declined by 2.1%. In our largest business line, marine site characterization in Europe and Africa, we have seen an ongoing shift in revenue mix towards generally typically shorter duration oil and gas projects. While we continue to maintain strong market positions, particularly in geotech solutions, industry overcapacity has resulted in lower pricing, particularly in geophysical services. Although we are actively rationalizing our fleet, adjusting the cost base takes time, and therefore also this has a significant adverse impact in the group's margin. In the Americas, more asset integrity business has been seen in Brazil, as you know, on the long-term contracts that we have started. and that has been partly compensated by ongoing soft marine site characterization marked environment there as well. In Asia Pacific, asset integrity revenue included a high contribution from two inspection and monitoring campaigns in Australia, with a relatively high portion of low margin pass-through revenue and a significant one-off charter cost. In the Middle East, results were impacted by incremental expense from the war, as we spoke about, including some clients deciding to undertake certain inspection and monitoring campaigns in-house themselves. In our land business, the 19.5% currency comparable growth was primarily attributed to strong nearshore activities in Europe and Africa, and more onshore infrastructure projects in the Americas, in particular in the US. With that we go to the next slide, free cash flow. The free cash flow was 3 million compared to 26 million in the third quarter of last year. The benefit of a lower working capital outflow was offset by lower operating cash flow, primarily reflected by decline in EBDA. Capital expenditure was 34 million euros and remained in line with the full year guidance of approximately 150 million euro. Days revenue outstanding improved from 82 days a year ago to 80 days and the quality of the receivables remained sound as the aging profile of our revenue or receivables improved. Working capital remained elevated at 17.7% of the 12-month revenue at the end of September. And this is driven by increased revenues in the year to date, as well as lower CAPEX and other payables. We remain committed to bringing the working capital down to our targeted level of 10 to 15% range at year-end. Consistent with normal seasonality patterns, we expect working capital to unwind in the fourth quarter. We go to the next slide. The balance sheet. We continue to proactively manage our balance sheet. First, the leverage. The net debt amounted 474 million euro as per end September, 2026, broadly unchanged from the 473 million at the end of June, resulting in net leverage of 1.9 times. As we are above the self-imposed target of 1.5 or below 1.5, I should say, we are focused and intent to further strengthen our balance sheet moving forward. Management is very focused on to improve financial performance and actively manage net debt through strict capital discipline. Limiting CAPEX and managing working capital down to our target level of 10 to 15% of revenue, as I just mentioned. Then our maturity profile. We are pleased to have secured a long-term funding until 2031. On the 14th of October, we announced that we have secured a two-year extension on the maturity of our existing senior unsecured debt facilities to December 2031. on the exact same terms as secured in December 2024, extending the maturities of our RCF of 400 million and the term loan of 100 million to 2,031. On the 22nd of October, we paid back the 14 million euro loan, the term loan we took last year as a temporary measure to strengthen operational flexibility. In parallel to extending our debt facilities, we announced a 150 million unsecured financing facility with the European Investment Bank to support the phase development and deployment of our uncrewed surface vessel technology and the related subsea robotics and remote control. The facility underpins our technological leadership and provides long-term funding, effectively protecting our RCF from potential future funding needs related to the transformation towards US fees. It's important to add that the facility does not determine how much and where we will invest. Further investments in US fees will of course be evaluated on their own merits. The business case for USVs is built on the ability to operate in a more efficient, safer and sustainable way. Gradually, we will be replacing our traditional geophysical vessels with USVs. And that is also basically not necessarily taking out all the vessels because we also feel that those larger vessels will be needed for particular projects. But over time, the larger vessels will be reduced. Then we go to the next slide. So let me turn to offshore wind, obviously the big question of many of you. Our long-term view of this market has not changed. Offshore wind remains an essential component of an affordable, secure and diversified energy system, alongside other renewable and conventional energy sources. Its strategic importance in Europe was reaffirmed by the North Sea Summit earlier this year. reflecting the growing focus on energy security and independence. Political commitment therefore remains strong. At the same time, the industry continues to recalibrate. Developers are placing greater emphasis on financial discipline, project returns and delivery certainty. Governments are also working to improve auction frameworks and risk allocation. This is necessary to restore However, the translation of political ambitions into bankable projects and firm awards is still taking longer than anticipated. Progress differs significantly country by country, and developers remain selective. There are nevertheless encouraging signs. The recent successful auction in Denmark supports our view that the European market is gradually moving towards recovery. Further auctions are expected in a number of markets, including the United Kingdom, France, the Netherlands and several Asian countries. In parallel, investment in European grid infrastructure is increasing. This is essential to address the connection constraints and ultimately enable further offshore wind development. and the medium and long-term investment outlook remains attractive. And to go in a bit more detail, the next slide. And this slide provides more detail on what the recovery could mean for Fugro and importantly, the expected timelines. The chart shows the sharp reduction in awarded European offshore wind capacity in 2026. It also shows a significantly stronger pipeline of ongoing and planned Thank you for watching. So we're already seeing healthy tendering activities supported by improving auction and contracting frameworks across several countries. And these changes are intended to provide developers with more attractive balance between risk and expected returns. The important point is that there is a time lag between the auction and the resulting activity for Fugro. So an auction process normally takes between three to six months. Where the site is awarded to the developer, survey activity would normally begin around six to nine months later, depending on the type of auction and the maturity of the project. And again, you see different means of auction suggested here in the slide. In several markets, including the Netherlands, Belgium, Germany, Denmark, governments are also commissioning surveys before the auction itself. These state-led programs can create activity earlier in the cycle. Beyond the initial site characterization phase, Fugero can also support projects through the detailed engineering investigations, construction support, and subsequent inspection and monitoring. The opportunity therefore extends across a considerable part of the project lifecycle. Based on the current auction pipeline and the expected timing of the subsequent surveys work, we continue to expect offshore wind site characterization activity to begin recovering from the second half of 2027. And I do want to emphasize that we remain cautious. Tendering activity is healthy, but firm awards have yet to follow at the required scale. Our expectation is therefore based on a visible and improving pipeline, but we still need to see this pipeline to convert in actual projects and backlogs. We go to the next slide. Two more slides. So now turn to the other core markets of Fugro, where the medium-term outlook remains sound. In offshore oil and gas, we continue to see selective growth rather than a broad-based expansion. The market is absolutely affected by the ongoing volatility in the Middle East, but the underlying fundamentals remain supportive. Continued investment is required to compensate for the natural fuel depletion and also to maintain sufficient spare production capacity. We see particularly attractive activity in frontier and deep water developments in Latin America, Asia Pacific and Africa. At the same time, construction activity is increasingly focused on smaller type acts and modifications to existing assets rather than large new greenfield developments. These play well to our broad offering across site characterization, asset integrity and inspection and monitoring. The aging offshore asset base also creates structural demand for inspection, maintenance, and life extension services. This provides a relatively resilient source of activity, even in a more volatile investment environment. In infrastructure, long-term investment programs continue to support activity levels. We are seeing particularly opportunities around nuclear energy and data centers in Europe and the United States, with data center investment also accelerating in Asia Pacific. We do, however, remain mindful of the pressures for the geopolitical uncertainty, persistent inflation and increasing sovereign debt. These factors can affect timing of public and private investments. Overall, though, the expectation investment growth in both offshore oil and gas and infrastructure supports our confidence in the medium-term outlook of these core markets of Fugro. I come to the last slide. To conclude, our outlook for the full year remains unchanged. Market uncertainty is expected to persist in what is normally a seasonally slower fourth quarter. Customer caution, overcapacity in parts of the marine site characterization market, and continuing impact of the war in the Middle East are all expected to weigh on profitability and therefore on our full year margin. Against that backdrop, our immediate priorities are clear. We're focused on improving profitability, protecting cash generation and strengthening our balance sheet. The 50 million annualized cost reduction program remains on track. At the same time, we're intensifying our efforts to structurally improve performance. This goes beyond the current program and includes further change in the way we operate and organize our business, as well as the already named vessel rationalization measures discussed. We are also applying strict capital discipline. Capital expenditure for the full year remains limited to approximately 150 million, and we expect the normal fourth quarter working capital unwind to support cash flow. So while the near-term market environment remains challenging, we are taking decisive action on the elements within our control. At the same time, the medium to longer term financials across offshore wind, oil and gas, and infrastructure remain sound. And with that, I would like to open up for questions.

Ladies and gentlemen, we are now ready to take your questions. If you wish to ask a question, please press pound key five on your telephone to enter the queue. The first question comes from Luc van Week from De Grove Peterkamp. Please go ahead.